This is an excerpt from The Breakdown newspaper. To read the full article, register.
“Conventional approaches to economic development leave out some of the most important social benefits and underestimate economic progress.”
– William Nordhaus
In 1906, Upton Sinclair went undercover in the meatpacking factories of Chicago to expose the cruelties of poverty he portrayed in Forest: families living in overcrowded slums, children working in dangerous, dehumanizing factories, workers crippled and abandoned by industrial capitalism without any protection.
In 2025, we have a new type of data-driven muckraker: Michael W. Green, a property manager, who boldly discovered that American families making less than $140,000 are living in poverty.
One would be surprised how these families live on a low six figure income! According to Green’s proposal, two-thirds of Americans should be eligible for food stamps.
Unlike Sinclair, however, Green doesn’t seem to have lived with the families he’s promoting. If he did, he could see that his spreadsheet was misleading.
Economists who are well-versed in interpretation seem to agree in their assessment of Green’s. virus thesis.
Scott Winship phones and “the worst poverty analysis I’ve ever seen.”
Tyler Cowen he gets that Green’s study is “wrong.” The fundamentals are wrong, the principles are wrong, and the evidence is wrong.
Jeremy Horpedahl he says “It’s ridiculous to use $140,000 as a measure of poverty.”
Noah Smith he says Green “gets his numbers wrong” and says his assumptions are “pretty ridiculous.”
Green addresses some of these objections Herebut maybe you don’t have to be an economist to see that the naysayers are right – because surely no one making $139,000 a year is starving?
Green’s argument is more plausible than that.
He mentioned, for example, the MIT “cost of thriving” index which says it took 30 weeks for the average man to live a good life in 1985 vs. 63 weeks now.
I’m not an economist, and I wouldn’t even make the waiting list at MIT. But, living in 1985, I can confidently say that things are now easier and better than they were before – financially, at least.
(Television shows, movies, music, fashion and celebrities were all at their best in the 1980s. Not to mention the exciting lack of cell phones and adult surveillance.)
But cars, gadgets, electronics, video games, alcohol? Almost everything you can buy to make your life better is better these days than ever before.
It’s almost always cheaper, if it’s changed for the better.
Even the house.
Cowen wrote: “Green said that housing prices have risen, but Americans today have more places to live than ever before, and fewer people.”
It’s health care!
Cowen explains that “all medical conditions have been declining, rather than rising in cost – or, in economic terms, that the cost of buying an extra year of life has been falling instead of rising.”
In fact, Cowen says simply, “I would rather have modern health care at today’s prices than 1972 health care at 1972 prices.”
Me too: I like to be modern everything at current prices than 1985 anything at 1985 prices.
This idea – that the Green figures are looking for a big change in what our dollars buy us – is more than a contradiction in terms, if it is a statement. (Presentism? Currentism?)
William Nordhaus demonstrated this systematically by measuring the value of light in lumens. By tracking lumen-hour costs across technologies such as candles, kerosene and electric bulbs, Nordhaus showed how ignoring changes in color (more light per unit, in the case of lighting) greatly underestimates the history of economic growth.
The cost of lighting a room for three hours – which took about three hours to operate in the 1800s – requires only a fraction of the work now: more than 43,000 corrections that the official figures missed on average.
With this, Nordhaus made the main point that because technological change is not fully reflected in GDP statistics, we tend to appreciate how much our lives have improved.
The downside is that failure to respond to these changes can lead to false assumptions about the cost of living, as discussed in this section. tweet:
The joke is that someone forced to buy 1800s lighting technology on 1800s money will be really poor because they would not have anything left to spend on modern medicine, houses or phones.
Green seems to be making the same mistake: He looks at today’s families spending on high-end goods and services without accounting for the value they’re getting.
“There is a serious flaw in Green’s view on higher prices,” Cowen concludes. “Prices are high because demand is high, which can only happen because more Americans can afford to buy.”
$140,000 a year buys a lot of things.
Let’s look at the charts.
Moving up:
The US middle class has been shrinking, but only because the upper class has been growing. In 1967, 5.2% of US households earned more than $150,000 (adjusted for inflation) versus about 34% today.
People have been moving into the middle class, too:
The number of Americans earning more than 200% of the federal poverty line (c. $60,000 for a family of four) has increased by 8.5 percent since 1975.
Poverty, even when measured, is falling:
This chart from Economic Strategy Group shows that poverty has been reduced by almost half according to income methods and by more than 80% using consumption methods – in both cases, more than the government statistics show.
Expiration date:
An higher education of “use poverty” (green) and “after-tax poverty” (red) show that the government’s official, CPI-based measure of poverty has failed to capture decades.
Most foods:
Americans consume about 3,800 calories a day – 15% more than we did in 1985 and about 50% more than we should.
More health benefits:
8.2% of Americans were uninsured in 2024, down from 16% in 2010.
The candles were the best:
This is a reminder that as recently as the 1800s, candles were so expensive that it was economical for people to go out to sea and risk their lives to hunt whales.
Highlight:
One million hours is about the amount of light you can get from a standard incandescent light bulb that runs continuously for two months. In the year 1300, it would cost the same as the $52,000. No.
In the words of Nordhaus:
William Nordhaus made economic progress visible by calculating the “time value” of light. In 1830, you had to work three hours to get one hour to light a candle. Today, you get that same hour of light in one-thirteenth of a second.
Have a great week, top readers.
Get news in your inbox. Check out the Blockworks blog post:
